Lira rebounds after auction

Bloomberg

The lira extended earlier gains, strengthening to 1.7587 per dollar at 5:30 p.m. yesterday.

The Central Bank yesterday bought $50 million of liras at an average price of 1.7822 liras per dollar. The bank said received $141 million of bids.

"The auction helped to lift some of the pressure on the lira," said Aslı Savranoğlu, an economist at EFG Istanbul Securities. "Though, the lack of an International Monetary Fund, or IMF, buffer and the performance on the fiscal side may weigh on the lira in the short term. It’s too early to say the relief is permanent."

The currency plunged last week by the most in almost five months as Prime Minister Recep Tayyip Erdoğan signaled delays to a loan accord with the IMF. Turkey’s budget deficit soared to 12 billion liras ($6.8 billion) in February from 431 million liras a year earlier. The lira tumbled 31 percent against the dollar in the past six months as the global crisis drives the country into recession and government talks on a new IMF loan accord stalled over budget planning. The two sides paused their negotiations on Jan. 26.
The Central Bank auctions are likely to slow, rather than halt, the lira’s decline, analysts including Nick Chamie, the Toronto-based global head of emerging-markets research at RBC Capital Markets, wrote in a note to clients late Monday. The government needs to agree to a loan from the IMF for the currency to strengthen, they wrote.

"Volatility will continue as we keep receiving demoralizing data," said Sevgi Aytekin, head of the foreign-currency desk at Alternatifbank in Istanbul.

Turkey needs IMF lending to bridge an expected shortfall in foreign financing this year, estimated to be about $30 billion, and to help firms meet debt payments. Bonds strengthened, pushing the average yield 23 basis points lower to 15.18 percent, an index of securities tracked by ABN Amro Holding showed.

"After the ... intervention, the currency risk declined and the interest rates became attractive for foreign investors," said Selim Gülkan, a trader at Türk Ekonomi Bankası.